Medifast sues for defamation

$270 million suit says fraud investigator tried to manipulate stock

February 19, 2010|By Gus G. Sentementes | gus.sentementes@baltsun.com

Medifast Inc. filed a $270 million defamation lawsuit on Thursday against an ex-felon who became a fraud investigator for making allegations over the past year that a subsidiary of the nutritional products company was operating as a Ponzi scheme.

The Owings Mills company is suing Barry Minkow and his Fraud Discovery Institute in California. Medifast said in a statement that Minkow, who spent seven years in federal prison for fraud he committed with his carpet-cleaning company, had issued "false and misleading reports" in an attempt to manipulate and profit from a drop in Medifast's stock price.

FDI on its Web site had previously accused a Medifast direct-sales subsidiary, Take Shape For Life, of being a Ponzi scheme. Critics of Minkow have said that FDI could make a profit from the drop in the stock price of a company it investigates and publicly criticizes.

"Medifast is no Ponzi scheme and by likening me and the company to the massive fraud perpetrated by Bernie Madoff, Minkow and his associates have gone too far," Bradley T. MacDonald, Medifast's executive chairman, said in a statement.

Medifast's general counsel, Michael Tanczyn, declined to comment on the pending litigation. The company has 369 employees in Maryland.

The lawsuit comes two days after FDI announced on its Web site that it would no longer continue its investigation into Medifast, opting instead to focus its resources on other companies.

Despite the negative attention from FDI, Medifast's stock price has more than quadrupled over the past year to $22.34 on Thursday.